March 27 – Gold $661.80 down $1.20 - Silver $13.18 down 13 cents

John Embry: Time for gold 'to go ballistic' approaches

Dust always blowing about the town,
Except when sea-fog laid it down,
And I was one of the children told
Some of the blowing dust was gold.

All the dust the wind blew high
Appeared like god in the sunset sky,
But I was one of the children told
Some of the dust was really gold.

Such was life in the Golden Gate:
Gold dusted all we drank and ate,
And I was one of the children told,
'We all must eat our peck of gold."

Robert Frost, A Peck of Gold

GO GATA!!!

It saddens me greatly to announce the death of a friend who has been such a big help to me writing this column right after my one and only appearance on CNBC in February 1999. Judith McGee, at the time with Refco in Toronto and now Mann Financial, happened to catch what I had to say on behalf of GATA and contacted me immediately (Whereas CNBC rejected my ever coming back once they heard what GATA had to say).

We became friends and I spoke with her 3 and 4 times a day until she came down with cancer last year. Even with cancer spreading throughout her body and into her brain, she stayed on the case with her mentor Tony Wilson as best she could from home while fighting this insidious disease. If there is ever a perfect example that life is not fair, it is that such a nice person as Judith can be struck down so quickly. She shall be greatly missed by all who knew her.

The AM Fix came in at $665.15. That was it as far as any upwards excitement was concerned. Even though the euro firmed as the NY trading day went on, gold was held in check by The Gold Cartel, and then sent lower … especially, as is so often the case, after the PM Fix of $664 concluded. Repeat, repeat, repeat.

While there is much to bring your way, there is little to talk about concerning gold’s boring uneventful day.

The gold open interest rose 3196 contracts yesterday to 316,790, as the funds bought gold sold to them by the cabal. The silver open interest went the other way again, dropping 398 contracts to 112,951.

After a Fix of $13.34 in London, silver was bagged on the Comex. May copper fell back from a key technical resistance point, falling 8 cents.

Crude oil, down most of the session, crept back late to finish up .02 to $62.93 per barrel.

GATA’s Chris Powell sent out the following dispatch this morning:

Dear Friend of GATA and Gold:

Sprott Asset Management's chief investment strategy, John Embry, writes in the March 30 edition of Investor's Digest of Canada that we're nearing the exhaustion of central bank gold reserves in the face of rising demand, which is when the price of gold will "go ballistic." You can find Embry's new commentary, "The Time for Gold 'to go Ballistic' Approaches," at the Sprott Internet site here:

http://sprott.com/pdf/investorsdigest/investors_digest_mar_30_2007.pdf
or try this abbreviated link:  http://tinyurl.com/32x25o

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

Ironically, I had been preparing some follow-up stuff on the incredibly important changes that are supposed to be in the works on how the central banks report the real gold holdings in their vaults. While the mainstream gold world yawns about this development, if it actually comes into play (without further hidden deceptions), the changes will rock the gold world if GATA is correct as we are sure we are. I will be getting into this more and more as the year goes on, as the potential impact here is that FORTUNES will be made in a very short period of time … for those who are in position and understand the significance of the findings and how they will affect the gold price, which could easily double on this news alone.

For starters let us peruse a couple of paragraphs in John’s fine piece on some of the past intrigue in this matter … intrigue that has been COMPLETELY IGNORED by the mainstream gold world and Planet Wall Street:

"However, the crux of the matter is still the availability of central bank gold to plug the yawning gap between demand and mine and scrap supply. In that regard, the position of the U.S. is critical because the U.S. Treasury allegedly controls the largest gold reserves on the planet. But there are questions about whether that gold is really there given the fact that there hasn’t been a public audit since Eisenhower was president in the 1950s. Adding even more intrigue to the situation were the changes in nomenclature in 2001 that affected 94% of the Treasury’s gold. Until early that year, the reserves held at Fort Knox, West Point and the Denver Mint were categorized as "Gold Bullion Reserves". Then they were arbitrarily re-designated "Custodial Gold Bullion". The ink was barely dry on that designation when in June of that year they were reclassified as "Deep Storage Gold". Given the speculation about whether the reserves are still physically in place, this exercise in semantics raised the red flag among skeptics. If the gold were indeed there, why not classify it as "Gold Bullion Reserves" as had been the case for decades?

"Invoking the term "Deep Storage Gold" led some to suggest that the U.S. had been active in a program of gold swaps whereby deliverable bars of gold had been swapped for gold that has yet to be mined. Only the U.S. government officials directly involved know the answer for sure, but given the rampant chicanery in the opaque world of gold, this certainly raises suspicions and reinforces my view that we are very, very close to that key moment when there could be insufficient central bank gold available to meet mounting demand. As I have said before, that is when the gold price is going to go ballistic."

What does Custodial mean to you? What does Deep Storage mean to you? Certainly this nomenclature has little to do with transparency, which brings us to the IMF plan and a Dow Jones article today brought to my attention by the ever vigilant Neal Ryan of Blanchard and Company:

IMF Draft Plan Should Aid Gold Swap Transparency - Analysts
By Lisa Yuriko Thomas
Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--The International Monetary Fund has proposed to increase transparency in the gold market by publishing statistics that reveal the amount of gold loaned and swapped into the market by central banks, analysts said

Friday. The first draft version of the sixth edition of the IMF's Balance of Payments and International Investment Position Manual was released earlier in March. It is open to consultation and will be discussed at the IMF's meeting in October 2007.

But in a surprise move to some analysts, the IMF draft offers a clarification of treatment of unallocated and allocated gold accounts as well as the definition of monetary gold, which isn't included in the fifth edition of the manual.

The moves, if adopted, are "to be welcomed for the main reason that it adds transparency," said Rhona O'Connell of GFMS Analytics in London, "which is what everyone wants."

According to the IMF draft, gold bullion can be a financial asset, otherwise called monetary gold, or a good, otherwise known as nonmonetary gold, depending on the holder and the motivation for holding.

"Monetary gold is gold to which the monetary authorities have title and is held as reserve assets," the IMF said, and comprises gold bullion and unallocated gold accounts.

Both of these accounts are to be distinguished from accounts that are linked to gold - accounts indexed to gold - which are considered deposits, the draft said.

He said that as the IMF begins implementing changes to gold-reserve accounting regulations, the gold market will become "more accessible and transparent for all market participants."

The IMF draft also proposes further clarification with regard to the treatment of loans involved in repos and gold swaps. In other words, helping to clarify where gold should be allocated on the books.

This contrasts sharply with the IMF's previous decision to report gold held in monetary reserves, both swaps and loans, all in one-line item, said analysts.

A gold swap is a repurchase agreement for currency.

With regard to gold swaps between a monetary authority and resident, "it is reported under repo loans in other foreign currency liabilities," according to the draft.

As for gold loan regulations, the IMF draft said that "to qualify as reserve assets, gold accounts must be available upon demand to the monetary authorities."

In effect, this means that when gold is deposited with a bullion bank, the ownership effectively remains with the monetary authority and the gold is returned to the authority on maturity, said analysts.

The draft continues to elaborate on loans saying, "if the monetary authority deposits gold bullion in an unallocated gold account, the gold bullion is demonetized and this is recorded in the other changes in assets account of the monetary authority."

And "if the account is with a non-resident and is available on demand, a transaction in an unallocated gold account is recorded in reserve assets," the draft continues.

Analysts maintain, however, that this is only a draft proposal and the market will have to wait and see if they are adopted in October.

But the outlook looks good if such clarifications are adopted. "We'll have to work to find out how much is loaned and swapped into markets, but for the first time ever, the market will be able to actually get this information with somework," said Ryan.

Based on the work of Frank Veneroso, James Turk and Reg Howe (all of whom used different methodologies), GATA believes that the gold no longer in central bank vaults, or that can be counted as gold reserves, is somewhere between 10,000 and 16,000 tonnes, which dwarfs the estimates of the gold establishment world.

The difference between our camp’s numbers and that of the mainstream gold world is STAGGERING and is the difference between gold going ballistic or grinding its way higher in the years to come. Perhaps this is why the World Anti-Gold Council refused to meet with Frank Veneroso over five years ago to go over, and learn more about, his findings. They would not even return his phone calls.

Even today the WGC is not getting behind the IMF’s plan to give the gold market greater transparency. WHY? Perhaps once this truth is known, it will show that an ad hoc group (GATA), with a tiny budget, did a far better job for the gold industry than they have done with their $50 million dollar per year stipend. Perhaps it will show that our team has far more intellectual superiority than their disingenuous, bureaucratic empty suits.

Now when it comes to that intellectual superiority, I am not talking about moi … but the likes of Andrew Hepburn (now with Sprott Asset Management) who discovered some startling dichotomies re the IMF while in HIGH SCHOOL!!! From a MIDAS commentary at the Matisse Table:

Dec 29, 2001

The following documentation and statements were presented in Reg Howe's lawsuit filed in the District Court of Massachusetts against Defendants: Bank for International Settlements, Alan Greenspan, William J. McDonough, J.P. Morgan & Co. Inc., Chase Manhattan Corp., Citigroup, Inc., Goldman Sachs Group, Inc., Deutsche Bank AG and Lawrence H. Summers, Secretary of the Treasury…

The reaction of the gold price to the Washington Agreement was the most dramatic rise in the price of gold ever. That is not what any of the central bankers had in mind. They were just perturbed at the tactics of The Gold Cartel to suppress the gold price and wanted to do something about it. They had no intention of creating financial chaos.

How could they have been so surprised at what occurred? Easy. They were working off the inept gold industry gold loan numbers of less than 5,000 tonnes. The real number was more than double that at the time, which means the central banks had FAR less gold in their vaults than they realized.

The announcement set off a panic because the yearly supply/demand was running over 1600 tonnes (again, more than they realized) and there would be no way to hold the gold price down under the new agreement. The scheming Gold Cartel was in deep trouble. Something had to be done FAST. A solution had to be found that would allow the central banks and The Gold Cartel to calm down the market by feeding central bank gold into that market to satisfy the strong gold demand.

The problem for The Gold Cartel and the central banks was they needed to come up with a way to get the job done and not let the investment world realize the seriousness of the situation. Some sort of plan of deception had to be devised and one was - in Santiago, Chile in October 1999 by the IMF. The plan centered around IMF central bank members "swapping out" their gold, yet still accounting for that gold as a central bank gold asset.

To put it bluntly, they would perpetuate a lie about what the true status of central bank gold really was. We know that to be the case as a result of the super-sleuthing of GATA Army's Andrew Hepburn of Canada.

Andrew asked the IMF the following:

Why does the IMF insist that members record swapped gold as an asset when a legal change in ownership has occurred?

The IMF answered:

"This is not correct: the IMF in fact recommends that swapped gold be excluded from reserve assets. (see Data Template on International Reserves and Foreign Currency Liquidity, Operational Guidelines, para. 72,)"

Yet, the following can be found on the central bank of The Philippines website:

"Beginning January 2000, in compliance with the requirements of the IMF's reserves and foreign currency liquidity template under the Special Data Dissemination Standard (SDDS), gold swaps undertaken by the BSP with non-central banks shall be treated as collateralized loan. Thus, gold under the swap arrangement remains to be part of reserves and a liability is deemed incurred corresponding to the proceeds of the swap."

The central banks of Portugal, Finland, and the ECB itself, then all confirmed (in writing) the Philippine's treatment of gold swaps to Hepburn.

Hepburn's latest investigative work reveals the Bank of Italy changing their accounting procedures in October of 1999 to accommodate the IMF's devious scheming. Andrew Hepburn just reported in with the following:

http://www.lemetropolecafe.com/pfv.cfm?pfvID=1900

Thus, as Andrew discovered, the IMF was running around in circles saying one thing to us, and requesting another from central banks. It is blatant deception and lying … what else is new about the gold market?

The point is the GATA camp has been on this case for some time, while practically no one else was paying attention. The ramifications of what ought to be coming down the pike (who knows what is really going on behind the scenes?) should be earth shattering. STAY TUNED!

CARTEL CAPITULATION WATCH

More gold goodies:

Both FX and Stock market prices are unavailable from India because of a public holiday in Mumbai, the financial capital.

TOCOM found world gold $4.25 higher than at the previous close, and that was enough to chill yesterday’s modest interest. On volume up 1.1% to the equivalent of 16,046 Comex lots, open interest fell 1.2 tonnes (476 Comex lots): Mitsubishi’s data implies the public added 0.1 tonnes to its long. The active contract closed up 17 yen but world gold went out 30c below NY. MKS notes selling orders capped the market around $665.

The ECB weekly statement of condition revealed two CBs sold a total of E189 Mm of gold last week, or 12.17 tonnes at the current book value. The previous week saw 16.5 tonnes sold. Back-to back double digit sales have not been seen since last September. At a glance, something about current market conditions has triggered a shift in stance by the ECB. The matter is well discussed at http://www.resourceinvestor.com/pebble.asp?relid=30264

Yesterday’s $6.60 up day involved 123,381 lots trade in NY and the combined equivalent of 38,383 NY lots in Chicago. Open interest jumped 3,196 contracts in NY but fell 3,230 combined equivalent at the CBOT, a vivid illustration of the peculiarly divergent character of the two markets.

Today it appeared that the capping noted by MKS continued all day. NY traded about 80,000 lots and combined CBOT volume was about 29,094 NY equivalent. Gold closed down $1.20.

The Gartman Letter set up to buy a break out today, which was probably narrowly missed.

© 2007 Bill Murphy
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